NEW MJ NEWS

AYR Wellness Reports First Quarter 2023 Results

AYR Wellness Inc. (CSE: AYR.A, OTCQX: AYRWF) (“AYR” or the “Company”), a leading vertically integrated U.S. multi-state cannabis operator (“MSO”), is reporting financial results for the first quarter ended March 31, 2023. Unless otherwise noted, all results are presented in U.S. dollars.

The following financial measures are reported as results from continuing operations due to the sale of the Company’s business in Arizona, which are reported as discontinued operations. All historical comparisons have been restated accordingly.

David Goubert, President & CEO of AYR, said, “I’m excited to share our strong profitability improvements during the quarter, as we began to execute on our financial and operational goals. Revenue and adjusted EBITDA1 each modestly beat our expectations, and respectively grew quarter over quarter by 3% and 9%. We grew revenue by 18% year-over-year and adjusted EBITDA1 over 60% year-over-year with significantly expanded adjusted EBITDA margin, while generating positive operating cash flow for the third consecutive quarter.

“From a balance sheet standpoint, we were pleased to announce that we have reached an agreement to provide significant liquidity improvement for the next few years via amendments to contingent consideration for the acquisitions of Garden State Dispensary and Sira Naturals, as well as resolving what otherwise would have been a potentially significant near-term dilution event for our shareholders, related to our acquisition of GSD. The agreements align with our goal of prioritizing the financial health of the Company and allow AYR to remain flexible as we continue to scale and optimize the business.

“I am encouraged to see the early progress in the execution of our 2023 optimization plan, which includes initiatives aimed at boosting sales, improving margins, reducing operating expenses and unlocking working capital through better inventory management. Managing cash is crucial at this stage of the cannabis industry, and the plan has already begun to improve our balance sheet and overall financial health.

“The early results from these initiatives are positively impacting our performance across our footprint, including states like Nevada or Pennsylvania where, despite more stagnant top line revenue, we have better leveraged our data to lower input costs, optimize pricing and become more deliberate with product promotions. Our operational initiatives led to a quarter-over-quarter improvement of 8% in adjusted gross profit1 and 29% in adjusted EBITDA in Nevada, and a 20% quarter-over-quarter increase in adjusted EBITDA1 in Pennsylvania.

“Over the past few months, we have also introduced to our teams and started implementing our Grow Forward Plan, a collection of initiatives aimed at driving strong revenue growth during the second half of 2023 and beyond. Key initiatives in the plan include upgrading our retail expertise, further developing our customer algorithm, rationalizing and building equity in our CPG brands portfolio, and continuing to improve our product quality. The combination of these initiatives is designed to further cement AYR as a retailer of choice and a house of brands across each of our markets over the medium to long-term.”

First Quarter Financial Summary (excludes results from AZ for all periods) ($ in millions, excl. margin items)

Q1 2022

Q4 2022

Q1 2023

% Change
Q1/Q1

% Change
Q1/Q4

Revenue

$99.5

$114.3

$117.7

18.3%

3.0%

Gross Profit

$40.3

$53.0

$48.3

19.7%

-8.9%

Adjusted Gross Profit1

$52.0

$66.6

$65.3

25.6%

-1.9%

Operating Loss

$(21.0)

$(142.9)²

$(21.7)

NA

NA

Adjusted EBITDA1

$16.1

$24.2

$26.3

64.0%

9.0%

Adjusted EBITDA Margin1

16.1%

21.1%

22.4%

620bps

120bps

1Adjusted EBITDA, Adjusted Gross Profit and Adjusted EBITDA Margin are non-GAAP measures, and accordingly are not standardized measures and may not be comparable to similar measures used by other companies. See Definition and Reconciliation of Non-GAAP Measures below. For a reconciliation of Operating Loss to Adjusted EBITDA as well as Gross Profit to Adjusted Gross Profit, see the reconciliation table appended to this release.

2Based on current market conditions, including the impact of price compression, the Company incurred a non-cash goodwill impairment charge of $118M (excludes AZ), reducing the carrying value of goodwill across all reporting units.

First Quarter and Recent Highlights

Retail Updates

Opened seven new stores in Florida since the beginning of 2023, bringing AYR’s total footprint to 60 dispensaries across the state. The Company plans to open an additional 10 new stores in 2023 for a total of 70 stores at year end.

On track to rebrand all of the Company’s Florida stores from Liberty Health Sciences to AYR Cannabis Dispensary this summer.

Leadership Updates: new company leadership organization fully in place to lead our “Grow Forward Plan”

Appointed four Regional General Managers, coming from internal and external sources and with full P&L ownership of their respective markets.

Appointed Andy Cho as Chief Digital & Marketing Officer.

Appointed Kenny Stoll as Chief Supply Chain Officer.

Appointed Alexandra Gonzalez Burke as VP of Retail Performance.

Realized multiple internal promotions and new hires across key departments, including retail excellence, client development and supply chain, among others.

Corporate Updates

Announced mutual termination of AYR’s proposed acquisition of the equity interests of Gentle Ventures, LLC d/b/a Dispensary 33, and certain of its affiliates that collectively own and operate two licensed retail dispensaries in Chicago, Illinois.

Entered into an option to acquire two Ohio dispensary licenses from Daily Releaf, LLC and Heaven Wellness, LLC, to begin establishing a vertically integrated presence in the state.

Closed the sale of Blue Camo, LLC which comprises the Company’s Arizona business, to AZ Goat, LLC, a group consisting primarily of the former owners of Blue Camo, which included $20 million in cash, an elimination of $22.5 million in seller notes and elimination of approximately $15 million in lease liabilities.

Closed a $10 million real estate financing in Q1 with an 8% interest rate, which was an upsizing of an existing mortgage with a community bank that originally closed in March 2022.

Subsequent to quarter end, AYR closed the acquisition of Tahoe Hydroponics, an award-winning cultivator and one of Nevada’s top producers of high-quality cannabis flower.

Financing and Capital Structure

The Company deployed $7.2 million of capital expenditures in Q1 and ended the quarter with a cash balance of $96.5 million.

The Company has approximately 74.1 million fully diluted shares outstanding based on a treasury method calculation.i

Subsequent to quarter end, the Company announced it has reached an agreement to amend the terms of contingent consideration under the membership interest purchase agreements of GSD NJ, LLC and Sira Naturals Inc. The amendment for GSD NJ, LLC settles the contingent consideration with total proceeds of $37.2 million, consisting of $10 million in cash, $14 million in promissory notes, $3 million in Equity Shares, and another $10.2 million in cash payable at a future time based on circumstances related to negotiations with other debtholders.
The promissory notes are due December 2026 with monthly interest-only payments of 13.5% until May 2024 (with 1% monthly amortization thereafter). The number of Equity Shares was calculated based on a market price equal to US$0.79 which represents 3,797,468 Equity Shares. The amendment for Sira Naturals Inc. represents a two (2) year deferral of $27.5 million of proceeds from the original May 2024 payment date, with an annual interest rate of 6.0% and 10% annual amortization payments. In addition, the Company has executed amendments to promissory notes issued to the GSD NJ, LLC seller representative and certain of its affiliates to extend the maturity dates of notes with outstanding principal amount of $27.65 million in the aggregate for two (2) years, conditioned upon, among other things, holders of at least 75% of the Senior Secured Notes agreeing to extend the maturity date of such notes by at least two (2) years.

Outlook

The Company anticipates second quarter revenue and Adjusted EBITDA1 to grow in-line with Q1 sequential growth trends. AYR is also reiterating its expectation of generating positive cash flow from operations for the full year 2023 although operating cash flow trends will not be linear given the timing of tax payments.

AYR’s expectations for future results are based on the assumptions and risks detailed in its MD&A for the period ended March 31, 2023 as filed on SEDAR and with the SEC.

Conference Call

AYR management will host a conference call today, followed by a question-and-answer period.

Date: Tuesday, May 16, 2023
Time: 8:30 a.m. ET
Toll-free dial-in number: (800) 319-4610
International dial-in number: (604) 638-5340
Conference ID: 10021727

Please dial into the conference call 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact the Company’s investor relations team at ir@ayrwellness.com.

The conference will be broadcast live and available for replay here.

A telephonic replay of the conference call will also be available for one month beginning at 11:30 a.m. ET on Tuesday, May 16, 2023.

Toll-free replay number: (855) 669-9658
International replay number: (412) 317-0088
Replay ID: 0092

Financial Statements

Certain financial information reported in this news release is extracted from AYR’s Consolidated Financial Statements and MD&A for the quarter ended March 31, 2023. AYR files its financial statements and MD&A on SEDAR and with the SEC. All financial information contained in this news release is qualified in its entirety by reference to such financial statements and MD&A.

Definition and Reconciliation of Non-GAAP Measures

The Company reports certain non-GAAP measures that are used to evaluate the performance of its businesses and the performance of their respective segments, as well as to manage their capital structures. As non-GAAP measures generally do not have a standardized meaning, they may not be comparable to similar measures presented by other issuers. Securities regulators require such measures to be clearly defined and reconciled with their most comparable GAAP measures.

Rather, these are provided as additional information to complement those GAAP measures by providing further understanding of the results of the operations of the Company from management’s perspective. Accordingly, these measures should not be considered in isolation, nor as a substitute for analysis of the Company’s financial information reported under GAAP. Non-GAAP measures used to analyze the performance of the Company’s businesses include “Adjusted EBITDA,” and “Adjusted Gross Profit.”

The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company’s performances and may be useful to investors because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. These financial measures are intended to provide investors with supplemental measures of the Company’s operating performances and thus highlight trends in the Company’s core businesses that may not otherwise be apparent when solely relying on the GAAP measures.

Adjusted EBITDA

“Adjusted EBITDA” represents (loss) income from continuing operations, as reported under GAAP, before interest and tax, adjusted to exclude non-core costs, other non-cash items, including depreciation and amortization, and further adjusted to remove non-cash stock-based compensation, impairment expense, the accounting for the incremental costs to acquire cannabis inventory in a business combination, acquisition related costs, and start-up costs.

Adjusted Gross Profit

“Adjusted Gross Profit” represents gross profit, as reported, adjusted to exclude the accounting for the incremental costs to acquire cannabis inventory in a business combination, interest, depreciation and amortization, start-up costs and other non-core costs.

A reconciliation of how AYR calculates Adjusted EBITDA and Adjusted Gross Profit is provided in the tables appended below. Additional reconciliations of Adjusted EBITDA, Adjusted Gross Profit and other disclosures concerning non-GAAP measures are provided in our MD&A for the three months ended March 31, 2023.

Forward-Looking Statements

Certain statements are forward-looking statements within the meaning of applicable securities laws, including, but not limited to, those statements relating to the Company and its financial capacity and availability of capital and other statements that are not historical facts. These statements are based upon certain material factors, assumptions, and analyses that were applied in drawing a conclusion or making a forecast or projection, including experience of the Company, as applicable, and perception of historical trends, current conditions, and expected future developments, as well as other factors that are believed to be reasonable in the circumstances. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies, and outlook of the Company. Forward-looking statements are often identified by the words “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “project”, “expect”, “target”, “continue”, “forecast”, “design”, “goal” or negative versions thereof and other similar expressions.

Forward-looking estimates and assumptions involve known and unknown risks and uncertainties that may cause actual results to differ materially. While AYR believes there is a reasonable basis for these assumptions, such estimates may not be met. These estimates represent forward-looking information. Actual results may vary and differ materially from the estimates.

Assumptions and Risks

Forward-looking information in this release is subject to the assumptions and risks as described in our MD&A for the quarter ended March 31, 2023.

Additional Information

For more information about the Company’s Q1 and full year 2022 operations and outlook, please view AYR’s corporate presentation posted in the Investors section of the Company’s website at www.ayrwellness.com.

About AYR Wellness Inc.

AYR is an expanding vertically integrated, U.S. multi-state cannabis operator. Based on the belief that everything starts with the quality of the plant, the Company’s mission is to cultivate the finest quality cannabis at scale and deliver remarkable experiences to its customers every day.

AYR’s leadership team brings proven expertise in growing successful businesses through disciplined operational and financial management, and is committed to driving positive impact for customers, employees and the communities they serve. For more information, please visit www.ayrwellness.com.

Company Contact:

Jon DeCourcey
Head of Investor Relations
T: (786) 885-0397
Email: ir@ayrwellness.com

Media Contact:

Robert Vanisko
VP, Public Engagement
T: (786) 885-0397
Email: comms@ayrwellness.com

Investor Relations Contact:

Sean Mansouri, CFA
Elevate IR
T: (786) 885-0397
Email: ir@ayrwellness.com

Ayr Wellness Inc.
Unaudited Interim Condensed Consolidated Balance Sheets
(Expressed in United States Dollars, in thousands, except share amounts)

As of

March 31, 2023

December 31, 2022

ASSETS

Current

Cash

$

96,484

$

76,827

Accounts receivable, net

9,525

7,738

Inventory

96,856

99,810

Prepaid expenses, deposits, and other current assets

14,791

8,702

Assets held-for-sale

260,625

Total Current Assets

217,656

453,702

Non-current

Property, plant, and equipment, net

304,498

302,680

Intangible assets, net

730,373

744,709

Right-of-use assets – operating, net

120,067

121,340

Right-of-use assets – finance, net

41,812

43,222

Goodwill

94,108

94,108

Deposits and other assets

8,655

8,009

TOTAL ASSETS

$

1,517,169

$

1,767,770

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities

Current

Trade payables

$

20,331

$

26,671

Accrued liabilities

31,519

25,470

Lease liabilities – operating – current portion

8,062

7,906

Lease liabilities – finance – current portion

9,764

9,529

Contingent consideration – current portion

38,654

63,429

Purchase consideration payable

249

2,849

Income tax payable

56,891

46,006

Debts payable – current portion

40,030

40,523

Liabilities held-for-sale

43,841

Accrued interest payable – current portion

7,819

2,581

Total Current Liabilities

213,319

268,805

Non-current

Deferred tax liabilities, net

72,413

72,413

Lease liabilities – operating – non-current portion

117,298

118,086

Lease liabilities – finance – non-current portion

21,724

24,016

Construction finance liabilities

36,422

36,181

Contingent consideration – non-current portion

23,839

26,661

Debts payable – non-current portion

140,362

136,315

Senior secured notes, net of debt issuance costs

244,500

244,682

Accrued interest payable – non-current portion

5,088

4,763

Other long term liabilities

273

524

TOTAL LIABILITIES

875,238

932,446

Commitments and contingencies

Shareholders’ equity

Multiple Voting Shares – no par value, unlimited authorized. Issued and outstanding – 3,696,486 shares

Subordinate, Restricted, and Limited Voting Shares – no par value, unlimited authorized. Issued and outstanding – 61,314,491 and 60,909,492 shares, respectively

Exchangeable Shares: no par value, unlimited authorized. Issued and outstanding – 5,680,444 and 6,044,339 shares, respectively

Additional paid-in capital

1,353,948

1,349,713

Treasury stock – 645,300 shares

(8,987

)

(8,987

)

Accumulated other comprehensive income

3,266

3,266

Accumulated deficit

(705,271

)

(510,668

)

Equity of Ayr Wellness Inc.

642,956

833,324

Noncontrolling interest

(1,025

)

2,000

TOTAL SHAREHOLDERS’ EQUITY

641,931

835,324

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

1,517,169

$

1,767,770

Ayr Wellness Inc.
Unaudited Interim Condensed Consolidated Statements of Operations
(Expressed in United States Dollars, in thousands)

Three Months Ended

March 31, 2023

March 31, 2022

Revenues, net of discounts

$

117,665

$

99,502

Cost of goods sold excluding fair value items

69,383

56,657

Incremental costs to acquire cannabis inventory in business combinations

2,518

Cost of goods sold

69,383

59,175

Gross profit

48,282

40,327

Operating expenses

Selling, general, and administrative

52,050

49,030

Depreciation and amortization

15,614

10,882

Acquisition expense

2,241

1,446

Loss on sale of assets

58

Total operating expenses

69,963

61,358

Loss from operations

(21,681

)

(21,031

)

Other income (expense), net

Fair value gain on financial liabilities

27,597

30,079

Interest expense, net

(7,565

)

(6,307

)

Interest income

165

29

Other, net

279

Total other income, net

20,476

23,801

Income (loss) from continuing operations before income taxes and noncontrolling interests

(1,205

)

2,770

Income taxes

Current tax provision

(11,178

)

(9,568

)

Deferred tax provision

(394

)

Total income taxes

(11,178

)

(9,962

)

Net loss from continuing operations

(12,383

)

(7,192

)

Discontinued operations

Loss from discontinued operations, net of taxes (including loss on disposal of $180,753)

(185,245

)

(2,001

)

Loss from discontinued operations

(185,245

)

(2,001

)

Net loss

(197,628

)

(9,193

)

Net loss attributable to noncontrolling interest

(3,025

)

(1,617

)

Net loss attributable to Ayr Wellness Inc.

$

(194,603

)

$

(7,576

)

Basic and diluted net loss per share

Continuing operations

$

(0.13

)

$

(0.08

)

Discontinued operations

(2.65

)

(0.03

)

Total basic and diluted net loss per share

$

(2.78

)

$

(0.11

)

Weighted average number of shares outstanding (basic and diluted)

70,008

67,585

Ayr Wellness Inc.
Unaudited Interim Condensed Consolidated Statements of Cash Flows
(Expressed in United States Dollars, in thousands)

Three Months Ended

March 31, 2023

March 31, 2022

Operating activities

Consolidated net loss

$

(197,628

)

$

(9,193

)

Less: Loss from discontinued operations

(4,492

)

(2,001

)

Net loss from continuing operations before noncontrolling interest

(193,136

)

(7,192

)

Adjustments for:

Fair value gain on financial liabilities

(27,597

)

(30,079

)

Stock-based compensation

5,584

9,654

Stock-based compensation – related parties

707

Depreciation and amortization

10,701

3,151

Amortization on intangible assets

14,336

13,982

Incremental costs to acquire cannabis inventory in a business combination

2,518

Deferred tax provision

394

Amortization on financing costs

573

573

Amortization on financing premium

(754

)

(754

)

Loss on disposal of property, plant, and equipment

58

Loss on the sale of Arizona business

180,753

Changes in operating assets and liabilities, net of business combinations:

Accounts receivable

(2,087

)

615

Inventory

3,257

835

Prepaid expenses, deposits, and other current assets

1,204

1,313

Trade payables

(6,171

)

1,263

Accrued liabilities

5,640

(6,824

)

Accrued interest payable

5,053

2,408

Lease liabilities – operating

640

612

Income tax payable

10,581

(11,980

)

Cash provided by (used in) continuing operations

8,635

(18,804

)

Cash provided by (used in) discontinued operations

1,621

(2,397

)

Cash provided by (used in) operating activities

10,256

(21,201

)

Investing activities

Purchase of property, plant, and equipment

(7,187

)

(27,950

)

Capitalized interest

(3,589

)

(3,684

)

Cash paid for business combinations and asset acquisitions, net of cash acquired

(9,101

)

Cash paid for business combinations and asset acquisitions, working capital

(2,600

)

(812

)

Deposits for business combinations, net of cash on hand

(2,825

)

Advances to related corporation

(2,678

)

Cash used in investing activities of continuing operations

(13,376

)

(47,050

)

Proceeds from sale of Arizona – discontinued operation

18,084

Cash provided by (used in) investing activities of discontinued operations

(44

)

1,137

Cash provided by (used in) investing activities

4,664

(45,913

)

Financing activities

Proceeds from exercise of options

300

Proceeds from notes payable, net of financing costs

10,000

25,913

Payment for settlement of contingent consideration

(10,000

)

Deposits paid for financing lease and note payable

(8,353

)

Tax withholding on stock-based compensation awards

(29

)

(3,891

)

Repayments of debts payable

(6,546

)

(2,081

)

Repayments of lease liabilities – finance (principal portion)

(2,378

)

(1,909

)

Repurchase of Equity Shares

(8,430

)

Cash used in financing activities by continuing operations

1,047

(8,451

)

Cash used in financing activities from discontinued operations

(123

)

(117

)

Cash provided by (used in) financing activities

924

(8,568

)

Net increase (decrease) in cash

15,844

(75,682

)

Cash, beginning of the period

76,827

154,342

Cash included in assets held-for-sale

3,813

Cash, end of the period

$

96,484

$

78,660

Supplemental disclosure of cash flow information:

Interest paid during the period, net

$

5,311

$

8,050

Income taxes paid during the period

908

23,469

Non-cash investing and financing activities:

Recognition of right-of-use assets for operating leases

1,358

12,193

Recognition of right-of-use assets for finance leases

468

8,057

Issuance of Equity Shares related to business combinations and asset acquisitions

4,482

Issuance of Equity Shares related to settlement of contingent consideration

11,748

Issuance of promissory note related to settlement of contingent consideration

14,934

Cancellation of Equity Shares

78

Capital expenditure disbursements for cultivation facility

241

Extinguishment of note payable related to sale of Arizona business

22,505

Extinguishment of accrued interest payable related to sale of Arizona business

1,165

Reduction of lease liabilities related to sale of Arizona business

16,734

Reduction of right-of-use assets related to sale of Arizona business

16,739

Ayr Wellness Inc.
Unaudited Interim Consolidated Adjusted EBITDA and Gross Profit Reconciliation
(Expressed in United States Dollars, in thousands)

Three Months Ended

March 31, 2023

March 31, 2022

December 31, 2022

$

$

$

Loss from continuing operations (GAAP)

(21,681

)

(21,031

)

(142,911

)

Incremental costs to acquire cannabis inventory in a business combination

2,518

Interest (within cost of goods sold “COGS”)

751

463

1,196

Depreciation and amortization (from statement of cash flows)

25,037

17,133

21,072

Acquisition costs

2,241

1,446

852

Stock-based compensation, non-cash

5,584

10,361

17,375

Impairment of goodwill

117,950

Start-up costs1

3,727

3,245

3,016

Other2

10,620

1,923

5,616

Loss on sale of assets

58

48,018

37,089

167,077

Adjusted EBITDA from continuing operations (non-GAAP)

26,337

16,058

24,166

1 These are set-up costs to prepare a location for its intended use. Start-up costs are expensed as incurred and are not indicative of ongoing operations

2 Other non-core costs including non-operating adjustments, severance costs and non-cash inventory write-downs

Three Months Ended

March 31, 2023

March 31, 2022

December 31, 2022

$

$

$

Gross profit from continuing operations (GAAP)

48,282

40,327

53,011

Incremental costs to acquire cannabis inventory in a business combination

2,518

Interest (within COGS)

751

463

1,196

Depreciation and amortization (within COGS)

9,424

6,252

9,064

Start-up costs (within COGS)

2,262

1,598

747

Other (within COGS)

4,564

837

2,541

Adjusted Gross Profit from continuing operations (non-GAAP)

65,283

51,995

66,559

______________________

i Includes pending M&A and contingent considerations related to GSD and Sira Naturals purchase considerations. Excludes AYR granted but unvested service-based LTIP shares totaling 5.2 million.


MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | new@marijuanastocks.com
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